In a reshuffling of its strategy for online entertainment delivery, Microsoft is giving up on its Internet Protocol TV platform, Mediaroom, to focus instead on maximizing the Xbox as a portal for TV shows, movies and videos.

In an official blog post Monday, Yusuf Mehdi, Microsoft corporate vice president of marketing, strategy and business for the Interactive Entertainment Business announced that Stockholm-based telecommunications giant Ericsson would acquire Mediaroom for an undisclosed sum.

Mutually Beneficial

"With the sale of Mediaroom, Microsoft is dedicating all TV resources to Xbox in a continued mission to make it the premium entertainment service that delivers all the games and entertainment consumers want -- whether on a console, phone, PC or tablet," Mehdi said.

Mediaroom was launched in June 2007 as Microsoft TV, and delivers pay TV services, including live, DVR and on-demand content, to multiple connected devices. ABI Research in November reported that Mediaroom commanded a 23 percent global share of IPTV set-top boxes at mid-year of 2012.

"This acquisition contributes to a leading position for Ericsson with more than 40 customers, serving over 11 million subscriber households," said Per Borgklint, senior vice president and head of Business Unit Support Solutions at Ericsson, in a separate statement on the acquisition. "In addition, Ericsson will be powered with senior competence and some of the most talented people within the field of IPTV distribution."

Obstacles in the Way

Michael Inouye, a senior home analyst at ABI Research, noted that his firm found growth of Mediaroom to be below Microsoft's forecast, partly due to limited fiber optic investments on the part of telecommunications companies and also due to regulatory hurdles in some regions such as Mexico and Brazil.

"This further aligns the company on the consumer side of the equation and away from the service providers and infrastructure-related decisions," Inouye told us, referring to Microsoft's Mediaroom sale to Ericsson.

"There were also some issues with the integration of the Xbox platform with some Mediaroom operators -- this refers to using the Xbox as a set-top box (with a networked DVR). AT&T for instance launched the Xbox/Mediaroom solution but later canceled the program until more work could be done to better the user experience."

"Ericsson acquiring Mediaroom might move the Xbox further away from these types of applications (e.g. console as a service provider set-top box) and position the Xbox as the main entertainment hub from Microsoft's perspective/position."

Low-Cost Entertainment Solution

Inouye added that there have been occasional rumors of an "Xbox Lite" for non-gamers focused on entertainment, but the success of the Xbox 360 shows its potential as a low-cost entertainment solution, while establishing the soon-to-be-released next generation Xbox as the primary gaming platform.

He predicts, however, that it will likely cost more than its predecessor due to features such as Blu-ray playback.